10-KPeriod: FY2002

QUANTA SERVICES, INC. Annual Report, Year Ended Dec 31, 2002

Filed March 31, 2003For Securities:PWR

Summary

Quanta Services, Inc. reported $1.75 billion in revenues for the fiscal year ended December 31, 2002. The company experienced a significant revenue decline of 13.1% compared to the prior year, largely driven by a downturn in the telecommunications and cable television sectors, characterized by reduced capital spending, customer bankruptcies, and economic pressures. This challenging environment also led to a substantial decrease in gross margins, which fell from 20.5% to 13.5%, attributed to declining volumes, increased pricing pressures, and lower asset utilization. A major development during the year was the significant impact of adopting SFAS No. 142, which requires goodwill impairment testing. Quanta recorded a substantial non-cash goodwill impairment charge of $166.6 million during the year, in addition to a transitional impairment charge of $488.5 million ($445.4 million net of tax) upon adoption. These charges collectively resulted in a reported net loss of $619.6 million for the year, a stark contrast to the net income of $85.8 million in 2001. The company's outlook indicates continued demand from electric power and gas customers but anticipates ongoing weakness in telecommunications and cable sectors, while focusing on cost control and operational efficiencies.

Key Highlights

  • 1Revenue decreased by 13.1% to $1.75 billion in 2002, primarily due to weakness in the telecommunications and cable sectors.
  • 2Gross margins significantly compressed, falling from 20.5% in 2001 to 13.5% in 2002.
  • 3The company recorded substantial non-cash goodwill impairment charges totaling $166.6 million during the year, plus a $488.5 million transitional charge ($445.4 million net of tax) upon adopting SFAS No. 142.
  • 4A net loss of $619.6 million was reported for the year, a significant reversal from a net income of $85.8 million in the prior year.
  • 5Selling, general, and administrative expenses increased by 16.0% to $225.7 million, impacted by higher bad debt expense, proxy costs, and loan/equity transaction costs.
  • 6The company's backlog decreased from $1.1 billion in 2001 to $980 million in 2002, reflecting customer financial pressures and project delays/cancellations.
  • 7First Reserve made a significant investment of $26.0 million in common stock and $72.9 million in Series E Preferred Stock during the year, providing capital infusion.

Frequently Asked Questions

The primary driver of the 13.1% revenue decrease in 2002 was the continued downturn in the telecommunications and cable television industries. This was characterized by reduced capital expenditures from customers, several customer bankruptcies, and broader economic challenges that negatively impacted project awards.

Quanta Services adopted SFAS No. 142, which requires regular impairment testing for goodwill. The company recorded substantial non-cash goodwill impairment charges, including an interim charge of $166.6 million and a transitional charge of $488.5 million (net of tax), due to a deterioration in the business climate and a reassessment of fair values. These charges significantly impacted the company's net income, leading to a large net loss.

Despite the significant net loss, the company reported $27.9 million in cash and cash equivalents and $317.4 million in working capital as of December 31, 2002. The company anticipates that its operating cash flow and credit facility will be sufficient to meet its working capital needs, debt service, and planned capital expenditures for at least the next 12 months, though further deterioration in its markets could pose challenges.

The downturn in the telecommunications and cable industries has led to decreased demand for Quanta's services in these sectors. The company anticipates these conditions to persist through 2003, prompting a strategic focus on cost control and aligning operations with the reduced demand from these customers, while emphasizing growth opportunities in the electric power and gas sectors.